PREVIEW - 2-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.9tn of 2-Year JGBs, re-opening JB#449. The MOF last sold 2-year debt on 30 May 2023, the auction drew cover of 3.769x at an average yield of -0.058%, an average price of 100.127, a high yield of -0.054%, a low price of 100.120, with 79.0246% of bids allotted at the high yield.

• One factor that could potentially affect demand at this week's auction is the deeper negative territory of the outright 2-year yield compared to the previous month's auction. However, it is worth noting that the current yield level remains above the low point observed in March, which may help alleviate some concerns.
• Another consideration is the flattening of the 2/5 curve compared to the curve observed at the May auction. However, it is still within the range observed so far this year.
• Despite these factors, it is also important to highlight that the 30 May auction saw a stronger bid compared to the April auction, despite a richening in the outright and flattening of the 2/5 curve between the two auctions. This can be attributed to the April auction taking place alongside the BoJ's April policy meeting, which may have influenced market sentiment.
• While there are factors that may potentially limit bids, it is worth noting that the receding possibility of BoJ policy adjustments in the upcoming months could offer some form of offset.
• Results are due at 0435 BST/1235 JST.